Calculate the internal rate of return of Project AMG

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Reference no: EM133052857

QUESTION - Calculate the payback period of each project and recommend the project that should be selected based on the payback period.

Consider two projects whose cash inflows are not even. Assume that the project costs R205 000. The net cash inflows for each year is as follows:

Year

Project M

Project N

1

R30 000,00

R75 000,00

2

R35 000,00

R95 000,00

3

R65 000,00

R60 000,00

4

R55 000,00

R26 000,00

5

R75 000,00

 

6

R95 000,00

 

Jimny Limited has a choice of investing in one of two projects. The following details relate to these:

 

Project BMW

PROJECT AMG

Investment Required

R70 000

R70 000

Expected Economic Lifetime

4 Years

4 YEARS

Minimum Required

12%

11%

Net annual cash inflows

 

 

1st Year

R15 000,00

R23 000,00

2nd Year

R30 000,00

R23 000,00

3rd Year

R28 000,00

R23 000,00

4th Year

R18 000

R23 000,00

Required -

1. Use the net present value method to determine which project Jimny Limited should choose.

2. Calculate the internal rate of return of Project AMG.

3. Calculate the Accounting Rate of Return for Project AMG.

Reference no: EM133052857

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